Hidden-Vault Plans Trip Fernandez as Argentine Economy Limps

Argentine President Cristina Fernandez de Kirchner hasn’t commented on the allegations, except for an allusion to glib-talking “loons” in her first appearance two days after the scandal broke on April 14. Photographer: Juan Mabromata/AFP via Getty Images

June 3 (Bloomberg) -- A Sunday night ritual has Argentines
tuning in and President Cristina Fernandez de Kirchner taking
heat.

Since April, the political TV show “Journalism for All”
has drawn top ratings by implying that Fernandez and her late
husband, former President Nestor Kirchner, enriched themselves
taking kickbacks from a friend being investigated for money
laundering. Among the revelations: testimony by Kirchner’s ex-secretary that she saw bags she believed contained cash moving
through the presidential palace and the blueprint of a vault the
show alleges was built at the Kirchners’ home in Patagonia.

The scandal has emboldened Fernandez’s enemies, who are
wielding the allegations to further damage a president already
wounded by a currency crisis, 24 percent inflation and rising
unemployment. As Fernandez’s approval rating plunges, the ruling
alliance’s performance in October’s congressional elections is
at risk along with an attempt by supporters to change the
constitution so she can seek a third consecutive term in 2015.

“We’re heading inevitably toward the end of a cycle,”
said Fabian Perechodnik, a political analyst at Buenos Aires-based pollster Poliarquia Consultores, adding that even if
Fernandez wins the mid-term vote she’s unlikely to have enough
support to extend her rule. “The government has lost the
momentum due to the accusations of the last month and a half.”

Money Laundering

Fernandez, 60, hasn’t commented on the allegations, except
for an allusion to glib-talking “loons” in her first
appearance two days after the scandal broke on April 14. Cabinet
chief Juan Manuel Abal Medina told La Red radio on April 24 that
the accusations lack substance and are part of “a media show.”

The TV program is the work of veteran investigative
journalist Jorge Lanata and is aired weekly on Grupo Clarin SA’s
Channel 13. Clarin is locked in a five-year battle with
Fernandez over an antitrust law requiring it to sell major
assets, a fact not lost on government supporters who say Lanata
is doing the bidding of Argentina’s biggest media group and
recycling old, unproven charges against the government.

In recent weeks, Lanata has presented documents and
interviews alleging the existence of a money laundering ring run
by Lazaro Baez, a businessman who befriended Kirchner two
decades ago when he was governor of Santa Cruz on the tip of the
South American mainland.

Ferrying Cash

In an April 14 program, two former associates of Baez,
Leonardo Farina and Federico Elaskar, said that in 2011 they
used private planes and front companies in Panama, Belize and
elsewhere to spirit offshore upward of 55 million euros ($71
million) in cash siphoned from state contracts won by Baez’s
Austral Construcciones SA.

The two recanted within days, saying they had spoken
falsely on camera. Farina said “everything I said was fiction
because that’s what Lanata wanted to hear.” Elaskar said he
lied to implicate others so he could collect an unpaid debt by
people close to Farina who would have an interest in buying his
silence.

Still, their accusations have since been supported by
flight records and land titles uncovered by other media outlets.
A federal judge also deemed them serious enough to open an
investigation and raid the offices of Elaskar’s finance company,
which Farina called “La Rosadita,” the “Little Pink House,”
in reference to the Casa Rosada presidential palace.

No Evidence

There’s no evidence tying Kirchner or Fernandez to the
alleged misconduct. Baez has denied any wrongdoing and vowed to
sue Farina and Elaskar for slander. Repeated calls and e-mails
to Austral and Baez’s lawyer, Nicolas Guzman, were not returned.

Still, in a country where former President Carlos Menem
once called tax evasion a “national sport,” the rise in wealth
of Baez, a former bank employee, and his proximity to power over
the past decade has fueled suspicion.

Baez donated the construction in Santa Cruz of a mausoleum
for Kirchner, who died in 2010. Baez’s company also built homes
on properties owned by the Kirchner family and won 98 percent of
the public work contracts in the oil-rich province when his
friend occupied the presidency, according to Lanata.

“Lazaro and Nestor are two sides of the same coin,”
Lanata, an 11-time winner of journalism’s top prize in
Argentina, said in a phone interview. “They were partners.”

‘How Much Is There?’

Others have also come forward with accusations, including
Kirchner’s longtime secretary, Miriam Quiroga, who said she
witnessed aides moving bags she was told contained cash after
meetings with businessmen at the Casa Rosada.

“Sometimes they told me, here, weigh it. How much is
there?,” she told Lanata, adding that she never verified what
was inside the bags.

Then on May 12, Lanata built a life-size replica of a walk-in vault that an architect said he constructed for the family in
the basement of their home in El Calafate, near Patagonia’s
glacier-carved peaks.

“For the first time you have more than rumors, you have
evidence that’s shown on TV,” said Martin Redrado, who
Fernandez ousted as central bank president in 2010 for refusing
to go along with a plan to tap reserves for debt payments.
“It’s something different to have a person saying where the
money was kept and in what way.”

The scandal is eroding support for Fernandez. Since being
re-elected in October 2011 with 54 percent, her approval rating
has plunged to 29 percent, according to an April 15-26 poll of
2,000 people by Management & Fit Consultores. That’s the lowest
since September 2009. Of the 75 percent of those surveyed who
had watched or heard of “Journalism for All,” almost 80
percent said they believe its reporting is at least partly true,
the same poll found.

Slandered Like Peron

The government has its defenders, especially those who
praise the passage of a law allowing gay marriage and
prosecution of leaders of the nation’s 1976-1983 military
dictatorship for human rights crimes.

Tens of thousands of supporters gathered outside the Casa
Rosada on May 25 to celebrate the Kirchners’ 10 years in power.
There, Fernandez told the crowd that she and her husband have
been the “most slandered and insulted in our history after
Peron and Evita,” referring to Argentina’s first power couple,
former President Juan Domingo Peron and his wife Eva, who
championed the poor during their rule starting in 1946.

Still, the allegations have the government on the
defensive, said polling analyst Perechodnik. Since the
allegations were aired, Fernandez pushed through Congress a law
mandating elections for judicial disciplinary panels that
opponents say limits courts’ ability to investigate corruption.

Boca Juniors

The kickoff of matches by the nation’s two most-popular
soccer clubs were also pushed back to 9:30 p.m. to coincide with
Lanata’s program, which has drawn as many as 3 million viewers
in greater Buenos Aires alone, according to ratings company
Ibope Argentina. That’s almost a quarter of the metropolitan
area’s population.

The strategy doesn’t appear to be working: In the first
head-to-head matchup May 26, Ibope said almost 1 million more
people tuned into Lanata, dressed in the blue and white jersey
of Argentina’s national team, than they did the game between
Boca Juniors and Newell’s Old Boys. Soccer matches have been
aired by state-owned TV since 2009, when the government ended
the exclusive rights of private channels to televise matches.

Last night, Lanata’s ratings beat those of the soccer game
for a second time, drawing 260,000 more viewers than the
official channel that transmitted the match between River Plate
and Argentinos Juniors.

Inflation Surge

While Fernandez and her husband pushed through wage
increases that fueled a boom in consumption as the nation
recovered from its 2002 economic collapse, that achievement has
been undermined by a 34 percent expansion in the money supply
over the past 12 months that has stoked the world’s fastest
inflation after Iran and Venezuela.

The government says inflation is running at 10.5 percent
through April, or less than half the rate estimated by private
economists. Argentina in February became the first nation to be
censured by the International Monetary Fund for providing data
considered inaccurate by the Washington-based lender.

The economic imbalances and Fernandez’s refusal to settle
claims with bondholders stemming from a $95 billion default in
2001 are why investors demand 1,167 basis points in extra yield
to hold Argentine debt instead of U.S. Treasuries, the biggest
spread among emerging markets, according to JPMorgan Chase & Co.

Economic growth, which reached 9 percent in 2010 and 2011,
has also slowed. After expanding 1.9 percent last year, South
America’s second-biggest economy is forecast to grow 3 percent
this year, according to the median estimate of 23 economists
surveyed by Bloomberg. Unemployment rose to a two-year high of
7.9 percent in the first quarter and consumer confidence among
the poor is at its lowest since 2001.

Economic ‘Melt’

The lack of private investment spurred the government to
push through Congress last month a tax amnesty bill to lure back
capital that has fled the country as Fernandez asserted greater
control over the economy. With restrictions on buying dollars in
place since 2011, Argentines have turned to the black market,
where the peso has plunged 24 percent this year.

“It’s like watching an ice cream cone melt in the sun,”
Redrado, referring to the course of the economy, said in a phone
interview from Buenos Aires.

Government defenders have questioned Lanata’s motives. The
chain-smoking 52-year-old is the founder of Pagina/12, a
newspaper that rose to prominence detailing human rights abuses
committed by the military junta. The paper, which he’s since
left, is now one of the government’s biggest backers.

‘Halls of Justice’

“The studios of channel 13 aren’t the halls of justice,
it’s not the Supreme Court,” said Carlos Heller, a pro-government lawmaker. “Since the opposition can’t win on other
subjects -- the declining debt, job creation and social advances
-- they want to install a debate over corruption.”

Heller says the accusations are timed to hurt the
government in October elections for half of the lower house and
a third of the Senate. Aided by a divided opposition, the
government is counting on expanding its majority in Congress to
obtain the two-thirds of seats necessary to amend the
constitution to allow Fernandez to run again.

Lanata, who likes to flick the middle finger at those he
considers hypocrites, says his work isn’t politically-motivated.

“I’ve been a journalist for many years and I’ve never seen
this degree of corruption,” he said in closing remarks on his
April 14 program. “What most angers me is them talking as if
they were Mother Teresa.”